When Should a CEO Leave?

Monday, 3 October 2011 04:10

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We all love success stories. Someone starts in the mail room and makes it to the top. Visionaries come in to turn around companies. People like Steve Jobs innovate, leave, innovate elsewhere and return to innovate even more. But those are the rarities. More often we’re faced with some hard questions.

How long should a CEO stay in office? As I have said many times, there is a serious problem when the CEO is also the Chairman of the Board. I am fascinated by CEOs who have never worked anywhere but at company where they are now serving as CEO. How does this individual have a perspective on the real world? How does this impact the company’s ability to broaden and diversify its business?

Why would any talented executive remain at such a company? The only way he or she will sniff the CEO’s office is if the current CEO dies, so what is the incentive to stick around? This causes such companies to hemorrhage major talent.

CEOs who also chair their boards naturally invite their cronies to serve on the board. Eventually you have a CEO surrounded with puppets who are only interested in preserving their board pay and privileges. They are not likely to welcome disruption or innovation, because that might mean more work.

How do these companies innovate and act entrepreneurially? They don’t. Most just milk the existing customer base until they become irrelevant (see Kodak). So why shouldn’t we have a standard turnover time for CEOs, like term limits for our presidents? That would bring in new blood and prevent crony cabals from forming. And while we’re at it, let’s link CEO pay to company performance, so we can actually measure the effectiveness of the CEO and determine if it’s cheaper to keep them or show them the door!

We also have the interesting situation of CEOs who hang around as Executive Chairmen. These folks are in management position, don’t run anything, but are paid on by the company. Why? A recent report from Wall Street said that the number of Executive Chairman positions in U.S. corporations climbed from 17 in 2008 to 35 in 2010. Interesting correlation with the recession. You think these guys might not have been able to get other positions, so they are hanging on to what they know how to do?

Just what does and Executive Chairman do? In my experience they get involved in financials and critical decisions but have no revenue responsibility, no product-line responsibility…or any other responsibility. The one thing they are good at is making the job of the current CEO harder by making it unclear who is really in charge.

This corrupt CEO culture stifles disruption. Employees feel that the game is rigged to enrich the executives, so they leave and find other jobs. The cogs of the old machine stay and watch the company grind to a halt. Clearly that does not help the future! We need to be mindful about these things. Disruption is not just about technology. It’s also about leadership. Most organizations could benefit from a positive CEO turnover—not as HP did by having three CEO’s in one year, but by regularly bringing fresh thinking and new urgency into the company.